Friday, 23 June 2017

Let’s start with a confession: try as he may, this blogger still finds the valuation of trademarks and brands a bit of a black box. For sure, there are some fine books that attempt to explain how this kind of valuation is done (see, here, for example, the excellent book by Gordon Smith and Susan Richey,Trademark Valuation: A Tool for Brand Management). But the sense of unease remains.

Against this backdrop, the following headline that appeared on reuters.com on Thursday grabbed his attention: “Diageo to buy George Clooney’s tequila for up to $1 billion.” Diageo, despite being saddled with one of the worst rebranded company names in recent memory, has managed to become the world’s largest spirits maker. Recently, it has taken an increasing interest in the high-growth market for tequila.

Enter “Casamigos” (meaning “house of friends” in Spanish), which was established only in 2013 by actor George Clooney, entrepreneur Rande Gerber, the spouse of supermodel Cindy Crawford, and real estate developer Mike Meldman. According to the deal, the owners of the company will be paid $700 million, with an additional $300 million to kick-in over 10 years if certain performance goals are met. While one billion dollars is not an especially large sum for an acquisition into today’s business world, it is hardly an insubstantial amount for a four-year old brand selling into a market with established competitors.

Crucially, the founders, or at least some of them (surely George Clooney?), will continue to promote the brand. Within the Diageo stable of tequila offerings, it is said that Casamigos will be promoted as a “celebrity lifestyle brand”, while the existing Don Julio product will be promoted as a “heritage craft spirit’.

For someone who is trying to make sense of this transaction and the acquisition price, consider the following, as reported in the reuters.com report:

1. Morgan Stanley estimates “the deal’s enterprise value was about 20 times annual turnover”. Compare this with what is described as an industry standard of enterprise value in the range of 4-6 times sales.

2. Morgan Stanley added that “If the brand sustains its growth, it could potentially be the next Patron [described as the major competitor in the tequila market]," …."But if not, it might be value destructive."

3. As for the fact that Diageo will be flogging two tequila products, however the respective brands will be positioned, analysts at Bernstein were skeptical:

"In our experience, it is difficult for sales, distributors and customers to focus on two brands in the same category at similar price points at the same time.”

4. How central to the deal is George Clooney’s promotion efforts? According to Morgan Stanley, Clooney’s continued focused involvement with the product is crucial. As suggested above, the brand positioning of the product rests on its celebrity status.

5. Whether it is reasonable to expect Clooney to promote the product for the next 10 years is anyone’s guess. If not, can one reasonably expect “Casamigos” to meet its goals and successfully position itself as a celebrity brand?

But all of this uncertainty is not simply the purview of analysts and other third-party observers. Consider the words of the president of Diageo North America, Deirdre Mahlan. A high-growth company like Casamigos (54% growth over the last two years) is "notoriously challenging to value under traditional methods".

Query whether this is simply another way of saying that the traditional methods cannot support the valuation given for the deal, which will soar or crater as a function of the ability to continue with the star-associated aura of the product. Disentangling the value of the brand from the contribution by George Clooney in continuing to promote the product strikes this blogger as a particularly challenging exercise in the valuation of intangibles.

Tuesday, 20 June 2017

One of the pressing problems in the United States has been
access to legal services, particularly to the poor and the middle class.For sure, the wealthy have access to lawyers,
but the poor and middle class apparently struggle.Indeed, the Legal Services Corp. recently
released a report titled, “The Justice Gap: Measuring the Unmet Legal Needs of Low Income Americans.”The Legal
Services Corp. teamed up with the University of Chicago to collect data
concerning the gap and made some (perhaps unsurprising) findings.The most important finding: “86% of the civil
legal problems reported by low income Americans in the past year received
inadequate or no legal help.”Moreover, “71%
of households with veterans or other military personnel have experienced a
civil legal problem in the past year.” And, “more than 60 million Americans
have family incomes 125% below the Federal Poverty Line,” including 1.7 million
veterans.In Seniors' households, “56% had
at least one civil legal problem in the last year.”

In a recent press release, the Brigham Young University Law
School has announced a program to address some of these problems called, “Law X”:

LawX will tackle
some of the most challenging issues facing our legal system today,” said Gordon
Smith, Dean of BYU Law School. “Some gaps in legal services may not be
attractive targets for innovation by small, private startups or larger
profit-oriented businesses, but closing these gaps would make a tremendous
difference to many people who feel priced out of the market for legal services.
A legal design lab embedded within a law school is an ideal platform for
addressing these issues. LawX will use design thinking to address these
problems, and when appropriate, to create products to solve them.”

LawX was conceived by Dean Smith and Kimball D. Parker. Parker, who developed
and founded CO/COUNSEL, a legal education
and crowdsourcing website, will teach the corresponding course, debuting in the
fall for second- and third-year BYU Law students. With the ambitious goal to
solve one legal challenge a semester, the course will be structured as a
design-thinking process, in which students will have fast-paced deadlines and
responsibilities that are much like being in a startup. The course will be an
immersive, hands-on experience by law students in collaboration with students
and professors in other departments at BYU.

Interestingly, Tech Transfer Central reports that a
University of Michigan Law School start-up, Court Innovations, has received $1.8 million in
funding to commercialize a software program.The program lets people who are working, have to care for children
or are concerned with getting in trouble with immigration enforcers to make appearances
and resolve problems in court “remotely.”[Hat tip to
Professor Paul Caron’s Tax Prof blog for leads to the Legal Services Corp.
report and the Law X press release.]

Friday, 16 June 2017

The U.S. Department of Energy announced on June 15, 2017 the
award of $258 million in research funding to six U.S. companies: Advanced
Microsystems, Cray, Intel, HP, NVIDIA, and IBM.The research funding is to support the development of the exascale
supercomputer ecosystem.An exascale
computer is 50 times faster than today’s super computers. The U.S. has five of the world’s
top-ten fastest computers, but the U.S.’s fastest computer is third after the
top two located in China.The six
companies will provide additional funding to make the investment close to $430
million in total.The press release is available,
here.

Professor V.K. Unni of the Indian Institute of Management,
Calcutta has authored a short and concise opinion paper titled, Promoting
Innovation: Moving Towards a Better Intellectual Property Regime, in the
Financial Express.His paper discusses
the importance of finding the right balance between patent rights and
competition law with respect to standard essential patents for India.Interestingly, he observes that in India
injunctive relief has been granted relatively frequently with respect to
standard essential patents held by Ericsson against Indian companies,
particularly when compared to pharmaceuticals.He notes that, “the Delhi High Court [recently] held that laws dealing
with protection of IPR and competition do not have any irreconcilable
repugnancy or conflict, and upheld the jurisdiction of the [Competition
Commission of India] to entertain complaints dealing with abuse of dominance
against the patent holder.”The article
is available, here.

A new group
of professional, large scale, content creators has formed to fight online
piracy: Alliance for Creativity and Entertainment (ACE). The new group, with around 30
members, includes Netflix, Amazon and many well-known entities such as BBC
Worldwide, Paramount, HBO, Univision and Telemundo. The press release
notes that there are "480 online services worldwide available for
consumers to watch films and television programs legally on demand." The press
release further ties the problem of piracy to jobs and even the danger of
identity theft.The press release notes:

Films and television shows can often be found on pirate
sites within days – and in many cases hours – of release. Last year, there were
an estimated 5.4 billion downloads of pirated wide release films and primetime
television and VOD shows using peer-to-peer protocols worldwide. There were
also an estimated 21.4 billion total visits to streaming piracy sites worldwide
across both desktops and mobile devices in 2016.

ACE states
that it “will conduct research, work closely with law enforcement
to curtail illegal pirate enterprises, file civil litigation, forge cooperative
relationships with existing national content protection organizations, and
pursue voluntary agreements with responsible parties across the internet
ecosystem.”It’ll be interesting to see
ACE, particularly with Internet companies, Amazon and Netflix, pitted against Google/YouTube and other platforms.Do non-professional/smaller scale content creators have a
lobbying/litigation group?

Tuesday, 13 June 2017

Yesterday, June 12, 2017, the U.S. Supreme Court surprisingly
granted cert to hear the Oil States Energy Services v. Green’s Energy Group’s case (Notably, a Rule 36 affirmance by the Federal Circuit which means there is
not an opinion—the Federal Circuit is just affirming without giving reasons.). The U.S. Supreme Court has limited its review
to one question: “Whether inter partes review, an adversarial process used by
the Patent and Trademark Office (PTO) to analyze the validity of existing
patents, violates the Constitution by extinguishing private property rights
through a non-Article III forum without a jury.” Could this case completely wipe out inter
partes review proceedings (IPRs)? That
is certainly the hope of some. Notably,
the U.S. Supreme Court refused cert to hear the MCM Portfolio v. HP case in
2016 which raised a very similar issue. As
stated by Judge Dyk in the below Federal Circuit opinion: “On the merits, we
reject MCM’s argument that inter partes review violates Article III and the
Seventh Amendment, and we affirm the Board’s decision that claims 7, 11, 19,
and 21 of the ’549 patent would have been obvious over the prior art.”

Notably, that particular case was graced with several amicus
briefs, including by 13 law professors, the Houston Inventors Association and
the University of New Mexico. The conservative Heritage Foundation has a piece discussing the importance of the MCM Porfolio
case and a call for congressional action on IPRs after the U.S. Supreme Court
denied cert in 2016. Part of the attack
on IPRs includes the argument by the University of New Mexico that it
essentially devalues university patent rights.
The amicus brief by 13 law professors, led by Professor Adam Mossoff,
specifically confronts the question of whether patent rights are public rights
or private rights:

By resting its decision on the premise that “patent rights
are public rights,” MCM Portfolio LLC, 812 F.3d at 1293, the Federal Circuit
directly contradicts these numerous, longstanding, and binding decisions of
this Court. Furthermore, the two primary administrative law cases relied on by
the Federal Circuit, see id. at 1292–93, are inapplicable in determining
whether the PTAB is respecting vested property rights secured under the
separation of powers doctrine and under other substantive constitutional
provisions, such as the Due Process Clause of the Fifth Amendment or the Seventh
Amendment. These two modern cases address solely creatures of modern
administrative statutes—procedural entitlements solely created in and
adjudicated by modern regulatory regimes. See, e.g., Atlas Roofing Co. v.
Occupational Safety & Health Review Comm’n, 430 U.S. 442, 455–56 (1977)
(addressing procedural rights within the administrative regime created by the
Occupational Safety and Health Act of 1970); Tull v. United States, 481 U.S.
412, 425–27 (1986) (addressing procedural rights within administrative regime
created by the Clean Water Act of 1972). Decisions by this Court addressing
modern regulatory procedural entitlements are distinct from the
constitutionally protected private property rights in patents long recognized
by this Court and by Circuit Courts for over two hundred years. This Court
recently and repeatedly confirmed the principle that patents are private
property rights that are secured under the Constitution. See, e.g., - 10 -
Horne, 135 S. Ct. at 2427; Fla. Prepaid, 527 U.S. at 642. This Court also
warned the Federal Circuit in Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki
Co., 535 U.S. 722, 739 (2002), that it must respect “the legitimate
expectations of inventors in their property” and not radically unseat such
expectations by changing doctrines that have long existed since the nineteenth
century. Moreover, Chief Justice John Roberts specifically stated in eBay Inc.
v. MercExchange, L.L.C., 547 U.S. 388 (2006), that nineteenth-century patent
law should be accorded significant weight in modern patent law in determining
the nature of the private property rights secured to patent-owners. Id. at
393–94 (Roberts, C.J., concurring).

So, the question is why now?
Why does the U.S. Supreme Court grant cert now (especially a Rule 36
affirmance without a written opinion below) and not in 2016? For sure, inter partes review proceedings,
perhaps intended to wipe out bad software patents has been used surprisingly against
biotech/pharma patents. Could it be new
Associate Justice Neil Gorsuch? Assuming
the timing works out, it takes four justices to take a case by writ of certiorari.
(Gorsuch, Thomas, Alito and Roberts?) Would
Kennedy swing? Curiously, over the
years, I have heard many complain about the loss of the American jury system.

Sunday, 11 June 2017

The Communications and Computer Industry Association has
released a report that attempts to ascertain the value of fair use to the U.S.
economy. The 2017 report places the value
added to the economy at $2.8 trillion dollars in 2014 with 18 million workers “benefiting
from fair use.” The 2017 report also
states that $5.6 trillion dollars of revenue was generated by fair use
industries. Some examples of fair use
industries include: “manufacturers of consumer devices that allow individual
copying and recording; educational institutions; software developers; and Internet
search and web hosting providers.” In
discussing fair use, the report states:

One of the beneﬁts of the ﬂexible fair use doctrine is its
adaptability, which can cover unanticipated new uses and technologies. Whereas
narrow exceptions drafted around speciﬁc technologies become outdated rapidly,
the ﬂexibility of the fair use doctrine has, at different times, enabled both
consumer electronics and online services. The breathing space provided by fair
use has facilitated a thriving
technology industry in the United States. New online products and services
almost inevitably involve some transitory copying, if only for technological
purposes. This makes the fair use doctrine a necessity, as licensing every time
an image is copied into a computer’s memory, for example, would be
prohibitively expensive and time-consuming.

Fair use has proven to be critical to other industries as
well. For example, the varied industries that encompass the entertainment
industry all rely on fair use. Fair use is also crucial in the context of
education and reporting the news, which depend upon reproducing and
disseminating primary sources. This reliance often becomes most apparent in
litigation, as all of these industries have defended ordinary business conduct
before courts by relying on the fair use doctrine.

In addition to being critical to a vast number of U.S.
constituencies, fair use has also gained recognition abroad as a crucial information
technology policy. While fair use is a principle of uniquely American origin,
nearly 50 other countries have adopted some version of American fair use or its
British counterpart, fair dealing, into their domestic copyright law.1
Perceiving the success that has resulted from the balances in the U.S.
copyright system, many countries aspire to emulate the U.S. fair use model.
This is the case even in countries with well-developed copyright systems. For
example, in 2010, then-Prime Minister David Cameron announced an inquiry into
adopting a fair use-type provision in UK law, in order to “encourage the sort
of creative innovation that exists in America.”

It would be interesting to see if
a similar analysis could be done for experimental use type exceptions to patent
infringement in Europe.

Cushman and Wakefield, the global commercial real estate
firm, has released its first tech cities report. The report attempts to ascertain which are
the most successful “technology cities” in the United States. The report notes that so-called tech cities
outperform other cities in terms of commercial real estate value and other
factors, but no one has attempted to determine exactly what is a “tech city.” That is what Cushman and Wakefield attempts by
looking at factors leading to a “tech stew”.
“Tech stew” is the term encompassing the characteristics leading to
development of a tech city. Some of
those factors include: institutions of higher learning; venture capital; tech
workers; knowledge workers; educated workers and growth entrepreneurship. For example, universities of higher learning
noted for San Francisco and San Jose include: UC Berkeley, Stanford, UC Davis, University
of the Pacific, Santa Clara University and University of San Francisco [a notable
omission is UC San Francisco]. For
venture capital, the report notes San Francisco/San Mateo at the higher end for
2016 with $28.5 billion and New York City at $9.1 billion. Growth entrepreneurship uses the Kauffman
Foundation’s metrics to measure firms with a high likelihood of growth. Notably, Washington DC, Austin, Silicon
Valley, Nashville, and Boston are the top five U.S. cities for growth
entrepreneurship.

The top ten tech cities are: 1) Silicon Valley; 2) San
Francisco; 3) Washington DC; 4) Boston; 5) Raleigh/Durham/Chapel Hill, North
Carolina; 6) Seattle; 7) Austin; 8) Denver; 9) San Diego; and 10) Madison,
Wisconsin. This list is not too
surprising; although a few notable missing cities from the top ten include: New
York City (15) and Los Angeles (18).
Oakland/East Bay is also considered separate from San Francisco and
Orange County is separated from Los Angeles. From the commercial real estate perspective,
the report notes that rents have increased almost 20% more since 2010 in the
top 25 tech cities than in the rest of the United States.

Wednesday, 7 June 2017

The National Academy of Inventors and the Intellectual
Property Owners Association has released a list of the top 100 universities granted U.S. utility patents. The top 10
of the list includes: 1) The Regents of the University of California: 505
patents; 2) MIT: 278; 3) Stanford: 244; 4) Cal Tech: 201; 5) Tsinghua
University/Graduate School at Shenzen: 181; 6) Wisconsin Alumni Research
Foundation: 168; 7) John Hopkins: 167; 8) University of Texas: 162; 9)
University of Michigan: 142; and 10) Columbia University: 118. The top 10 non-US universities include: 1)
Tsinghua University/Graduate School at Shenzen; 2) Korea Institute of Science
and Technology; 3) King Fahd University of Petroleum and Minerals; 4) National
Tsinghua University; 5) Korea Advanced Institute of Science and Technology; 6)
National Taiwan University/National Taiwan University Hospital; 7) King Saud
University; 8) Industry and Academic Cooperation at Yonsei University; 9) Ramot
and Tel Aviv University; and 10) National Chiao Tung University. On the overall top 100 list, National Chiao Tung
University has 53 patents and is ranked 44.
Interestingly at least 31 universities (or university foundations) are
non-US based. Also, the first European
institution on the list appears to be École polytechnique fédérale de Lausanne ranked
at 59 with 42 patents. Cambridge
Enterprise LTD is ranked at 97 with 25 patents.
Some of the Japanese institutions include University of Tokyo ranked at 69
and Kyoto University at 72. At least
eight of the top 100 are in South Korea and only two appear to be in Europe. [Hat tip to Technology Transfer Central].

Tuesday, 6 June 2017

In a recent article in the Wall Street Journal, What's Behind the Biotech Sector's Rebound: Biotech ETFs are Getting Hearts Pumping Again, Gerrard Cowen discusses the swings in the value
of biotechnology stocks. Last year was a
relatively poor year for biotech stocks—perhaps attributed to the election
campaign rhetoric about reforming drug prices.
This year biotech stocks are looking up, and why? The article discusses several reasons
provided by experts: 1) Trump was elected and he’s likely
to treat the sector more favorably than Clinton despite his rhetoric; 2) merger and acquisition
activity is likely to increase in the coming year because of likely Trump tax changes; 3) Trump may streamline FDA regulations; and 4) biotech companies were
undervalued last year. The article also
outlines risks to the sector which mostly revolve around problems with
uncertain politics and difficulty in valuation.

Interestingly, the article notes that despite difficulty
with valuation one helpful baseline, so to speak, is “patent protection.” I can understand why the author points to the
exclusivity of patents—supposedly hugely important to the industry—as a “steadying”
factor especially when compared to other industries where perhaps patent
protection may not protect a market as well as in biopharmaceuticals. However, patent protection in the U.S. has
been anything but stable. Indeed, as one
example, patent eligible subject matter is a mess and efforts to “clean it up”
are moving through the U.S. Congress championed by American Intellectual Property Law Association and the Intellectual Property Owners Association. If those proposals are enacted, it will be
interesting to see how the U.S. Supreme Court interprets those provisions. And, what of the future of trade agreements? The basic point is that patent law is ever
evolving and despite that change the belief in its ability to protect a market continues—and
thus draws capital for hopefully socially productive uses. The belief may align well with reality for the biopharmaceutical industry. For more on belief and patents, see Professor
Mark Lemley’s article Faith-Based Intellectual Property.

Monday, 5 June 2017

In TC Heartland v. Kraft Food Group Brands, a recent opinion, the US Supreme
Court decided to restrict the meaning of the patent venue statute. This statute essentially provides in which
judicial district a defendant may be sued for patent infringement. The patent specific statute, 13 USC 1400(b), provides:
“[a]ny civil action for patent infringement may be brought in the judicial
district where the defendant resides, or where the defendant has committed acts
of infringement and has a regular and established place of business.” The US Supreme Court had to analyze whether “where
the defendant resides” means “where the defendant is in incorporated” per a previous US
Supreme Court case analyzing that provision, or according to subsequent
amendments by Congress to the general venue statute which has a much broader definition of
what “resides” means. Ultimately, the US
Supreme Court in a unanimous Associate Justice Thomas opinion (Associate
Justice Gorsuch not participating) decided to adopt the more restrictive
definition: “resides” means where the defendant is incorporated.

Practically, many believe that this decision is another
attempt to restrict “abusive” patent litigation or patent troll behavior by
directing litigation out of the Eastern District of Texas to other districts—interestingly
perhaps to districts that may be more favorable to accused patent
infringers. One concern about patent infringement
generally has been the competence of judges and juries to address technical and
complicated patent cases. Notably, the
Eastern District of Texas has handled a large number of patent cases for many
years and arguably the judges have developed technical and legal competency in
patent cases. Indeed, this could explain
why the district handles patent cases relatively quickly. Arguably, we’ve now made a policy decision
pushing cases away from a competent district to those that are not. However, some cases presumably may now be
brought in districts in California or Delaware (where a large number of
corporations are incorporated), which may also have developed competency in
handling patent cases. I have been told
that juries in some districts in California are quite technically sophisticated—such
as in the Northern District of California where Silicon Valley is located. Perhaps one benefit of TC Heartland may be
better juries; although remember how the Apple v. Samsung jury was
criticized.

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